Marketmind: Last Lap

BY Reuters | ECONOMIC | 09/30/22 06:10 AM EDT

A look at the day ahead in U.S. and global markets from Mike Dolan

The last quarter of a dire 2022 gets underway next week with few signs of respite for world markets grappling with sky high inflation and rocketing borrowing costs.

Euro zone inflation hit 10% for the first time on record this month - with an eye-watering 17% rate recorded in the Netherlands, the bloc's fifth largest economy.

The August reading of Federal Reserve's favourite inflation gauge, the personal consumption expenditures (PCE) index, is released later on Friday.

None of these are likely to calm the horses.

Virtually all major asset groupings were in the red Q3 - with the S&P500 and MSCI's world stock index set for their third consecutive quarterly losses for the first time since the banking crash of 2008/2009.

Over the past 35 years, these indices have only recorded three or more negative quarters on two other occasions - the Great Financial Crash and the dotcom bust of 2000/2001. And for the S&P500, you have to go all the way back to 1984 for another losing streak of that length.

With financial markets under growing stress - and central banks in Japan, Britain and China intervening variously in currency and bond markets to suppress mounting volatility - investors will look to the final quarter for some signs of credit squeeze easing.

With geopolitical tensions with Russia intensifying, Germany on Thursday announced a 200 billion euro ($194 billion) "defensive shield" to protect companies and households from the impact of soaring energy prices - more than 5% of its national output and likely to require significant extra borrowing.

So far, U.S. Federal Reserve or Treasury officials seem unfazed by the ructions overseas - with policymakers seemingly intent on pressing ahead with the inflation fight.

Some put this week's wilder swings down to the approach of the quarter end itself.

But any sign now of a change of policy tone could change the picture for yearend. Fed Vice Chair Lael Brainard speaks later on Friday.

Stock and bond markets were generally calmer as Q3 limped to a close, with Wall St futures set for a positive open and both Treasury yields and the dollar off this week's highs.

Battered sterling benefited most from the easier greenback, with its rebound back above $1.10 now clocking gains of more than 7.5% from Monday's record low of $1.0382

Prime Minister Liz Truss and her finance minister Kwasi Kwarteng will on Friday meet the head of Britain's independent fiscal watchdog, whose analysis they previously spurned, in a bid to reassure markets after chaos triggered by planned tax cuts.

Key developments that should provide more direction to U.S. markets later on Thursday:

* U.S. Federal Reserve Vice Chair Lael Brainard, Fed board governor Michelle Bowman, New York Fed President John Williams, Richmond Fed chief Thomas Barkin all speak

* European Central Bank board member Isabel Schnabel, ECB board member Frank Elderson speak

* U.S. August core PCE inflation (f/c 4.7% vs 4.6%), University of Michigan final consumer sentiment index.

(By Mike Dolan, Editing by William Maclean mike.dolan@thomsonreuters.com. Twitter: @reutersMikeD)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

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